Cost Concept

On this occasion we will share knowledge about cost concepts and systems. Cost accounting information, cost objects, happy reading, hopefully it will be easier to understand …

Table of contents :

  • Cost Concept
    • 1). Definition of Costs (Cost) and Costs (Expenses)
    • 2). Cost Object
    • 3). Tracking Costs To Cost Objects
  • Cost accounting information system
    • 1). Definition
    • 2). Data Processing
    • 3). Use of Cost Data
  • Cost Object
    • 1). Tracebility
    • 2). Tracing
    • a). Direct search
    • b). Indirect search
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Cost Concept

The following is an explanation of the cost concept

1). Definition of Costs (Cost) and Costs (Expenses)

  • Cost (Cost) is the expenditure of economic resources measured in units of money, for example, the supply of raw materials.
  • Costs (expenses) are costs that have provided benefits and have expired, for example, depreciation expenses.

2). Cost Object

Cost object is a place where a cost or cost activity is measured, the goal is to trace and choose how objectively these costs are relied upon or generated.

3). Tracking Costs To Cost Objects

Tracking Costs To Cost Objects

  1. Direct Costs are costs that can be traced directly to the target
  2. Indirect costs are costs that cannot be traced directly to the target

Cost accounting information system

Below is an explanation of information systems in cost accounting

1). Definition

The Cost Information System is a system that builds management in implementing company profit targets, corporate profit targets. Good, precise and accurate cost information is required by every user of cost information, this can be fulfilled if:

  • Information is used systematically
  • Information should be coordinated

2). Data Processing

Data processing is a process of collecting, classifying, analyzing and reporting company data. Information systems or data processing must be able to provide information to choose:

  • Cost as well as revenue
  • Management evaluation for the present and in the future
  • Economic forecasts coming from outside the company


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3). Use of Cost Data

This data can be used by managers to:

  • Planning
  • Supervision
  • Pricing
  • Determines profit
  • Decision-making

Cost Object

A cost object is any object, such as:

  • Product
  • Customer
  • Department
  • Project
  • Activity

Example : A car is a cost object if we want to choose the costs incurred to produce a car. Of late, activities as cost objects.

For example:

  • Transfer of materials and goods
  • Equipment maintenance
  • Product design
  • Product Inspection

1). Tracebility

Traceability is the ability to charge a cost object that is economically feasible through a causal relationship.

  • Direct material costs These are costs that can be easily and accurately traced to cost objects. Examples such as: raw material costs and direct labor costs.
  • Indirect costs These are costs that cannot be easily and accurately traced to a cost object. Examples such as: Indirect material costs and indirect labor costs.

2). Tracing

Is the assignment of costs to cost objects using an observable measure of the resources consumed by cost objects, which can occur in the following ways:

a). Direct search

Is the process of identifying and charging costs that are specifically and physically related to a cost object. Usually done through physical observation.

Examples such as: the use of wheels, spare parts and assembly workers wages in determining car production.

b). Indirect search

Is the use of movers to impose costs on cost objects. Drivers are observable causal factors that measure the consumption of resources by objects.

Although not as accurate as direct searches, if the causal relationship is good, a high degree of accuracy can be expected.

  • Resource drive, measures the demand for power to activities and is used to assign the cost of resources to activities. Examples such as: to charge the cost of electrical resources consumed by equipment maintenance activities, a resource drive, namely the engine clock, is used.
  • Activity drivers measure activity demand by cost objects, and are used to assign activity costs to cost objects. Examples such as: to charge the cost of equipment maintenance activities to the cost object of the production department, the activity driver is used, namely the number of maintenance work hours


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